On October 21, 2022, the Internal Revenue Service (IRS) announced the updated contribution limits to retirement plans in Notice 2022-55. The new limits are valid beginning in tax year 2023. These limits are important, as they cap the tax benefits that can be realized from retirement plan savings contributions each year and are adjusted to account for annual inflation.
There are several options available under the ‘Employer Contribution Plans’ category. These plans are typically funded through an employer and may or may not have contributions paid for by the employer. For 401(k), 403(b), the federal government’s Thrift Savings Plan, and most 457 plans, the contribution limit will increase from $20,500 in 2022 to $22,500 in 2023.
Individuals aged 50 years and above can contribute additional funds, called ‘Catch Up Contributions.’ The catch-up contribution limit or the employer-sponsored plans mentioned above will increase from $6,500 in 2022 to $7,500 in 2023. This means those with a qualifying employer-sponsored plan who are 50 or older can contribute up to $30,000 to tax-beneficial retirement plans.
Depending on income, the IRS provides tax benefits to non-employer-sponsored retirement accounts called Individual Retirement Arrangements (IRAs). The traditional IRA offers a deduction for the income in the tax year the contribution is made, while a Roth IRA offers tax benefits when the funds are withdrawn after the qualifying retirement age.
The IRS has increased the contribution limit to these types of accounts to $6,500 in 2023 from $6,000 in 2022. For individuals eligible for a catch-up contribution, the additional contribution amount remains at $1,000.
Keep in mind that there is an income limit on both Traditional IRA and Roth IRA accounts before the tax benefits start to phase out. These limits are:
|Single Filers/Heads of Household||$73,000 to $83,000*|
|Married Filing Jointly (spouse contributing covered by employer plan)||$116,000 to $136,000*|
|Married Filing Jointly (contributor not covered by employer plan, but spouse is)||$218,000 to $228,000*|
|Married Filing Separate (contributor covered by an employer plan)||$0 to $10,000*|
|Single Filers/Heads of Household||$138,000 to $153,000*|
|Married Filing Jointly||$218,000 to $228,000*|
|Married Filing Separate||$0 to $10,000*|
Retirement Savings Contributions Credit
|Single Filers/Married Filing Separate||$36,500|
|Married Filing Jointly||$73,000|
|Heads of Household||$54,750|
*Note: Contribution limits to Traditional IRA and Roth IRA accounts phase out over the noted income range.
Need assistance understanding the tax benefits and contribution limits attached to the different tax-beneficial retirement accounts? Our team of knowledgeable professionals is here to help. Give us a call to discuss your tax strategy for retirement savings today.
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